Incoterms (International Commercial Terms)

Basics of Incoterms

The International Commercial Terms (Incoterms) are issued by the International Chamber of Commerce (ICC). They provide standardized rules to prevent misunderstandings in international trade. The current version is Incoterms 2020, which includes 11 clauses for different delivery and transport conditions.

Key aspects of Incoterms include:

• Transfer of risk and costs: Defines the point at which the buyer assumes the risk of the goods.
• Transport responsibility: Specifies which party arranges and manages the transport.
• Customs and export formalities: Clearly establishes who is responsible for export and import procedures.
• Insurance obligations: Some clauses require the seller to arrange transport insurance.

Examples of Key Incoterms

1. EXW (Ex Works)
   • Seller makes the goods available at their premises.
   • Buyer assumes transport costs, risk, and handling.
2. FOB (Free On Board)
   • Seller delivers the goods on board the ship at the agreed port of shipment.
   • Risk transfers to the buyer upon loading.
3. CIF (Cost, Insurance, Freight)
   • Seller covers costs, freight, and insurance to the destination port.
   • Risk transfers to the buyer once goods are loaded onto the ship.
4. DAP (Delivered at Place)
   • Seller delivers the goods to the agreed destination, excluding import customs clearance.
   • Buyer handles import formalities.

The choice of the appropriate Incoterm depends on transport mode, delivery conditions, insurance obligations, and customs procedures.

Advantages of Incoterms

• Legal certainty: Minimizes disputes between buyer and seller.
• Transparency: Clear allocation of costs, risks, and responsibilities.
• Efficiency: Standardized rules simplify international contract drafting.
• Planning reliability: Logistics partners know exactly who is responsible for transport, customs, and insurance.

Challenges in Application

• Different interpretations across countries or trading partners.
• Need to correctly specify and understand Incoterms in contracts.
• Adaptation to multimodal transport chains involving multiple carriers.
• Keeping up with updates (currently Incoterms 2020).

Importance in Modern Supply Chains

Incoterms are a central tool for international logistics and trade management. They facilitate transport planning, cost calculation, and risk allocation. Companies that correctly apply Incoterms secure their supply chains, reduce potential conflicts, and ensure efficient, legally compliant international deliveries.